IEA says U.S. gas prices of $5 could spur return to coal

Reuters Staff

2 Min Read

BRISBANE, May 27 (Reuters) - U.S. gas prices of around $5 per million British thermal units could prompt the world’s largest economy to step up use of coal, after years of cutting back on its consumption in favour of cleaner-burning gas, the West’s energy agency said on Monday.

The United States’ shale revolution has driven up domestic gas production and led to a drop in gas prices.

The production increase has led to plans to export the fuel, with Wood Mackenzie predicting exports of 50 million tonnes of liquefied natural gas (LNG) by 2020.

Such exports are widely expected to boost U.S. domestic gas prices, but it is still unclear how much they will rise.

“Our analysis shows if U.S. gas prices come to around $5 mmBtu - it is about $4.30 per mmBtu now - we may well see coal come back,” Fatih Birol, chief economist of the International Energy Agency, told reporters at an industry conference.

Only regulatory intervention to bar a switch back to coal could prevent greater coal use if gas prices rise to $5 per mmBtu, Birol said.

“If it is left only to economics, around $5 we may see a (coal) comeback, which would definitely be a development which would catch many people by surprise,” Birol said.

U.S. natural gas futures were trading at about $4.20 per mmBtu on Monday.

U.S. coal exports reached record levels in 2012 as producers exported their coal instead of selling it at home.

The surge in U.S. exports has, in turn, pressured Asian coal prices. It was one of the factors leading to a drop of around 30 percent in Australian coal prices from a record high of $130 per tonne in 2011 to under $90 per tonne.

Rising U.S. shale oil production will help meet most of the world’s new oil demand in the next five years, the IEA, which advises the United States and 27 other developed nations, has said. (Reporting by Rebekah Kebede; Editing by Clarence Fernandez)